“Apple iPhone Sales, Up 35%, Disappoint Investors” —Wall Street Journal
Only Apple could grow revenues 33%, sock away $202 billion in cash, gain market share in nearly every product line and still trigger a run on the stock. The sell-side analysts will now explain to investors why they should be buyers, not sellers.
Below: Excerpts from the notes we’ve seen so far. More as they come in.
Katy Huberty, Morgan Stanley: Solving the [FQ3] Puzzle. “While total company and iPhone revenue growth accelerated in the June quarter, iPhone units missed expectations. Solving for the factors that drove the miss suggests a decent 2H15 set-up, in our view… iPhone revenue growth accelerated, as did growth in Greater China, Japan and Europe in the quarter, suggesting demand remains strong despite volatile currency and equity markets during the period. We view the 2.5M iPhone unit miss versus our model as a function of management taking a conservative approach to channel inventory in light of currency volatility and related price actions. With demand strong despite these price increases in many regions, we see a path for channel inventory build in 2H15 that further supports our view that iPhone units can grow Y/Y.” Overweight. $155.
Timothy Arcuri, Cowan: Every Rose Has Its Thorn.“While mgmt. commentary sought to re-assure, iPhone units were light even adjusting for channel inventory. Normally, this would not concern us but evidence of a widespread demand reset from China is mounting (auto #s, UTX, FCS, LLTC to name a few from what we watch). In time, we expect new service offerings will ultimately pull through meaningful hardware sales, but for the near and even medium-term, iPhone units remain the key driver for the stock. On that front, our field work continues to suggest that builds are tracking down cycle/cycle for the first time in a new iPhone launch and, while we are very bullish about AAPL’s ability to tap into a much broader and deeper demand opportunity for a price-reduced 6/6+ than prior ‘old’ models, this is a different narrative.Downgrading to Market perform. Reducing price target to $130 from $140.
Mike Walkley, Canaccord Genuity: (Via Barrons). “In fact, we believe the current iPhone 6 and upcoming iPhone 6s should continue to post strong sales and high-end smartphone market share gains, as we believe the iPhone 6/ 6 Plus smartphones are generating very strong replacement sales from existing iPhone consumers who slowed the pace of iPhone upgrade purchases during the relatively disappointing iPhone 5 and 5s product cycles. In fact, with only 27% of the iPhone installed base having upgraded to the iPhone 6/6 Plus devices by Q3/1F’15, we anticipate continued strong replacement sales through 2015.”Buy. $150.
Steve Milunovich, UBS: (Via Barrons). “Apple’s quarter and outlook met consensus expectations except for a soft iPhone number of 47.5mn, which is like saying ‘Apart from that, how did you enjoy the play?’ Our call that the phone ASP would be $660 was correct but we overestimated units, especially with channel inventory declining. A near-term catalyst is not obvious going into tough compares though we think units can grow modestly in F16. Despite seasonally low iPhone units, we believe Apple is building long-term value.” Buy. $150.
Sherri Scribner, Deutsche Bank:(Via Barrons). ”Given iPhone drives the vast majority of sales and profit, softer iPhone units were a disappointment. We continue to remain concerned that AAPL’s smartphone market share is peaking, and expect iPhone unit growth to decelerate next year on more difficult compares.” Hold. $125.
Maynard Um, Wells Fargo: High Expectations And Cycle Uncertainty The Issues. “In a vacuum, Apple’s results were good, particularly when accounting for the potential impact higher pricing due to currency may have had on units. However, relative to expectations, results and guidance were disappointing, particularly with respect to iPhone units, where expectations were heightened by the supply chain as well as anticipation of indirect channel fill. We maintain our Market Perform given September qtr is a product transition qtr, tough comps coming, volatility in China, our expectation for less meaningful differentiation in 6s cycle (similar form factor), and lack of new material carriers to add.” Market perform. Valuation range: $125-$135.
Gene Munster, Piper Jaffray: Despite Noise, Critical Themes Intact. “We are buyers on the 6% aftermarket pullback on shares of AAPL based on the belief that Apple will continue to gain share in the high-end smartphone market and margins will expand into the S cycle resulting in Street numbers inching higher over the next several quarters. While some investors will view the 48.1 million iPhones (ex channel drain) as a disappointment below investor thinking for more than 49 million units, the reported unit sales represent significant market share gains. For the Watch, we estimate Apple sold around 2.5 million units, which was in-line with investor expectations.” Overweight. $172.
Aaron Rakers, Stifel: Buyers on Weakness. “While Apple’s iPhone ship at 47.5M … is likely to be considered a net-negative, we believe there are several positives: 1.) iPhone blended ASP ($/unit) at $660 vs. our $645 estimate; +$99 yr/yr driven by strong iPhone 6+ mix (note: includes a $24 yr/yr negative FX impact). 2.) Greater China – revenue +112% yr/yr … w/ iPhone ship +87% yr/yr … 3.) Apple reported that ~27% of the iPhone installed base represents consumers having upgraded to iPhone 6/6+; company also seeing the highest Android-to-iPhone switching rate ever. 4.) [free cash flow] totaled $12.945B … +64% yr/yr. Buy. $150.
Daniel Ives, FBR: Not the Number Bulls Were Hoping For. “Apple delivered headline numbers modestly beating the Street but softer than bullish Street expectations on the heels of an in-line iPhone number. As Apple has become the ‘gold standard’ of technology, it is held to a higher standard; thus, investors will be disappointed this morning by a good, but not great, iPhone shipment number… While China impressively grew 100%+ and remains the main fuel in the company’s engine, now Apple becomes a bit of a ‘prove me’ stock, as the Street needs to feel comfortable that the iPhone 6/6 Plus growth story is alive and well.”Outperform. Lowering price target to $175 from $185.
Walter Piecyk, BTIG: No Change To Apple Estimate As Higher iPhone ASPs Offset Lower Watch Estimates.“Investor focus should now fall squarely on the timing and details of the next iPhone launch and whether the company can deliver growth on top of the record-breaking FQ1 of 2015 when Apple sold 74.5 million phones. We think they can sell over 80 million iPhones this holiday season and hence continue to recommend the stock.” Buy. $160.
Neil Cybart, Above Avalon. “Apple reported strong 3Q results due to sustained iPhone 6 and 6 Plus sales momentum throughout the world, especially in China, Europe, Japan, and emerging markets. Revenue growth would have been 41% excluding FX impact, which is downright remarkable given Apple’s size. Not only are larger screen iPhones resonating with consumers, but they continue to provide Apple with margin expansion and pricing power. The iPhone 6 Plus may end up impacting the smartphone landscape more than any other phone in the market. While Apple gave enough clues to reach Apple Watch sales of between 2-3 million units, it is simply too early to draw any long-term conclusions about the device’s sales potential.”
Trip Chowdhry, Global Equities Research: Apple Beats consensus Revenues by $4.4 Billion in Constant Currency. “On the Conference Call, Apple CFO mentioned that the June quarter Revenues are 800 bps higher in Constant Currency. In Constant Currency, Apple Revenues are $53.73 Billion (vs consensus of $49.3 Billion) and EPS is $2.54 (vs consensus of $1.81). With such a massive beat of $4.4 Billion vs. Consensus, there was no need for Apple to ship any more iPhones in the Quarter.
Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple AAPL -5.08% coverage atfortune.com/ped or subscribe via his RSS feed.
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